OPIS Blog

Jet Fuel Prices in 2019 to React to Crude, IMO, Strong Demand

For the past two years, consumption of jet fuel by U.S. airlines has been strong, meaning that the annual pace of the growth in jet fuel consumption has outdistanced its major transportation fuel components, gasoline and diesel fuel.

Will 2019 offer more of the same trend for jet fuel prices? Let's find out.

Jet Demand to Continue to Outpace Gasoline in 2019, but Diesel May Rival

End-of-the-year 2018 Department of Energy statistics reveal U.S. jet fuel demand growth to be 2.3%, a figure that has been consistently over 2% all year, with fuel consumption averaging 1.75 million b/d.

By comparison, motor gasoline consumption in the U.S. has been averaging less than 1% for 2018. Diesel fuel consumption’s rate of growth has been slightly stronger than gasoline, but trails jet fuel.

U.S. jet fuel consumption in 2019 is expected to continue to outpace gasoline, but its rate of consumption growth may be rivaled by diesel fuel as global oil markets transition to IMO 2020, which requires ships to use low-sulfur fuel.

Some ships will employ scrubbers to insure clean fuel, others will burn low-sulfur fuel oil, but some will use diesel fuel.

In December 2017, U.S. jet fuel demand set a record in terms of weekly deliveries of fuel to the market, a proxy for demand, reaching 2.108 million b/d. It was the first time ever that weekly jet fuel usage topped 2 million b/d.

Only once in 2018 did weekly U.S. consumption of jet fuel top 2 million b/d, and that was August 2018, when it reached 2.006 million b/d.

Nonetheless, jet fuel consumption in 2018 topped 1.9 million b/d for more weeks than any other time in U.S. history. On five occasions, almost 5% of the time, U.S. jet fuel consumption surpassed 1.9 million b/d. Also, the number of weeks it perched above 1.8 million b/d in 2018 was the most ever.

OPIS projects that U.S. jet fuel demand will continue to grow in 2019 and can only be stopped by a global economic slowdown. Growth in passenger traffic in the U.S. and abroad, along with higher demand for freight deliveries, as more people shop online, will drive that growth.

IHS Markit, OPIS' parent company, on several occasions in 2018, issued special reports on jet fuel, each time expressing confidence that jet fuel demand growth would continue to be robust over the coming years.

By 2040, IHS Markit projects that global jet fuel demand will climb from 8% of total refined product demand in 2017 to more than 10% by 2040. The global market will reach 9.5 million b/d by 2040 from 7.45 million b/d in 2018, IHS Markit experts predict.

Most of that growth will be driven outside of the U.S., but America remains the biggest consumer of fuel, so will remain a critical contributor to that expansion.

Expectations for U.S. Jet Fuel Production to Remain Robust in 2019

Thankfully, U.S. refiners are making a concerted effort to produce lots of jet fuel.

While total jet fuel production in 2018 never reached the vaunted 2-million-b/d mark to match demand, it did top 1.9 million b/d on a regular basis during the summer of 2018, averaging 1.96 million b/d in August 2018, a monthly record.

One might expect U.S. production of jet to remain robust in 2019 as refiners keep pace with demand growth and an export market that has more than doubled for U.S. refiners in last several years.

Exports of jet fuel from the U.S. consistently average more than 200,000 b/d and easily double the export rates of any prior year.

Twice during 2018, U.S. exports of jet fuel topped 300,000 b/d, setting a record of 359,000 b/d in March 2018 only to be beaten by the 377,000-b/d export number set in October 2018.

When you compare U.S. exports of jet fuel with imports, it is evident that the U.S. has become a net exporter of jet fuel, with much of the material going to South America.

Refinery expansions and high run rates driven by normal demand growth and IMO 2020 requirements should mean sufficient production of jet fuel in the U.S. and worldwide to satisfy demand requirements.

Infrastructure issues – sufficient distribution capacity in terms of pipelines and storage – remain the biggest concern for airlines as they compete with other transportation sectors for supply space.

U.S. Jet Fuel Prices Aren’t Expected to Top Their Highest Rates Of 2018

A prevailing view through most of 2018 has been that middle distillate supplies (diesel and jet) will be tighter in 2019 and 2020 than gasoline, meaning that distillate prices will be at a premium to gasoline.

Few have changed that view, but the wild price projections have calmed down going into the new year.

Views on oil pricing for 2019 are already taking shape. The general view is that higher crude production from the U.S. and other areas will offset OPEC’s and Russia’s late 2018 decision to reduce output to help control a building surplus.

In terms of crude oil, 2019 prices will continue to be volatile and shaped by U.S. production increases and its ability to reach export markets as well as OPEC’s willingness to cede market share by taming production in support of prices. Geopolitical events always play a role in shaping supply worries and affecting prices.

Predominately though, few are looking for crude prices to be any more expensive in 2019 than they were in 2018.

U.S. jet fuel prices will likely outperform crude, with strong crack spreads evident most of the year.

But so long as crude prices remain subdued as many project, U.S. jet fuel prices aren’t expected to top their highest rates of 2018, which peaked in October 2018 when the OPIS U.S. spot average hit $2.40/gal.

Given where U.S. jet prices were finishing 2018 – near their cheapest levels all year – it would take a 30% spike in prices in 2019 to match the 2018 highs – not impossible, but not predicted.

Economy, IMO 2020 Could Upset the Apple Cart

There are two important wildcards for the 2019 jet fuel market – the global economy and the transition to IMO 2020.

Global economic growth is seen slowing, but that is relative to what has been a very strong pace over the last year or two. The projected slowdown for 2019 is not seen to be big enough to adversely impact demand.

IMO 2020 cuts two ways:

If refiners opt to increase crude oil runs to make more diesel fuel, that should increase jet fuel supply, since jet fuel is a straight-run product.

Conversely, if refiners adjust their crude oil yield curve to increase production – tilting more towards diesel and away from jet – that could marginally reduce jet fuel avails.